SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997 Commission File Number 0-13943
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STOKELY USA, INC.
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0513230
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1230 Corporate Center Drive, Oconomowoc, WI 53066
- --------------------------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code: (414) 569-1800
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at August 7, 1997
- ------------------------ -------------------------------
Common Stock, 11,388,462 Shares
$.05 par value per share
STOKELY USA, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - 3-4
June 30, 1997, June 30, 1996 and
March 31, 1997
Consolidated Condensed Statements of 5
Operations - Three Months Ended
June 30, 1997 and 1996
Consolidated Condensed Statements of 6
Cash Flow - Three Months Ended
June 30, 1997 and 1996
Notes to Consolidated Condensed Financial 7
Statements
Item 2. Management's Discussion and Analysis 8-13
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosure 13
About Market Risk
PART II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
June 30, June 30, March 31,
1997 1996 1997
(unaudited) (unaudited) (note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,228 $ 890 $ 1,660
Accounts receivable, less
allowance for losses of $505,
$570 and $508, respectively 10,276 16,378 10,634
Inventories: Finished goods 51,233 58,445 68,861
Manufacturing supplies 8,609 8,023 4,924
Prepaid expenses 918 1,251 728
Property held for disposition 132 9,500 537
---------- --------- --------
Total Current Assets 73,396 94,487 87,344
OTHER ASSETS 2,677 4,428 2,929
PROPERTY, PLANT & EQUIPMENT, at cost 74,343 91,656 73,112
Less accumulated depreciation 33,875 35,087 32,643
---------- --------- --------
40,468 56,569 40,469
---------- --------- --------
TOTAL ASSETS $116,541 $155,484 $130,742
========== ========= ==========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1997 has been condensed from the
audited financial statements at that date.
<PAGE>
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
June 30, June 30, March 31,
1997 1996 1997
(unaudited) (unaudited) (note)
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable $ 6,137 $13,996 $ 15,551
Accounts payable 27,201 14,559 29,311
Current maturities on long-
term debt 2,584 15,150 2,584
Other current liabilities 3,407 5,934 3,466
-------- -------- ---------
Total Current Liabilities 39,329 49,639 50,912
LONG-TERM DEBT, less current
maturities 68,188 77,230 68,041
OTHER LIABILITIES 2,945 3,210 2,982
STOCKHOLDERS' EQUITY:
Capital stock 572 572 572
Additional paid-in capital 43,521 43,628 43,593
Retained earnings (37,749) (18,334) (34,993)
Treasury stock at cost (285) (461) (373)
Cumulative translation adjustments 20 8
--------- --------- ---------
Total Stockholder's Equity 6,079 25,405 8,807
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $116,541 $155,484 $130,742
========= ========= =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1997 has been condensed from the
audited financial statements at that date.
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(unaudited)
Three Months Ended
June 30,
1997 1996
REVENUES:
Net Sales $ 36,325 $ 42,342
Other 2 35
--------- ---------
Total Revenues 36,327 42,377
COST AND EXPENSES:
Cost of products sold 30,091 37,200
Selling, general & administrative expenses 6,548 6,333
Nonrecurring charge -- 433
Interest 2,444 2,675
--------- ---------
Total Cost and Expenses 39,083 46,641
LOSS BEFORE INCOME TAX (2,756) (4,264)
INCOME TAXES -- --
--------- ---------
NET LOSS $ (2,756) $ (4,264)
========= =========
NET LOSS PER COMMON SHARE $ (.24) $(.38)
======= ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,378,415 11,332,303
========== ==========
See accompanying notes to consolidated condensed financial statements
(unaudited).
<PAGE>
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
1997 1996
Net cash provided by operating activities $10,568 $ 7,262
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,232) (521)
Proceeds from Disposals of property plant
and equipment 530
Increase (decrease) in other assets - net 315 (110)
-------- -------
Net cash used in investing activities (387) (631)
-------- -------
Cash flows from financing activities:
Change in short-term debt - net (9,414) (5,891)
Payments of long-term debt 147 --
Payment of deferred debt issuance costs (362) (729)
Capital stock transactions - net 16 102
-------- --------
Net cash used in financing activities (9,613) (6,518)
-------- --------
Net increase in cash and
cash equivalents 568 113
Cash and cash equivalents at beginning
of period 1,660 777
-------- --------
Cash and cash equivalents at end of period $ 2,228 $ 890
======== ========
See accompanying notes to consolidated condensed financial statements
(unaudited).
<PAGE>
STOKELY USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all normal and
recurring adjustments necessary to present fairly Stokely USA, Inc.'s
consolidated condensed balance sheets as of June 30, 1997 and 1996, and
March 31, 1997, the consolidated condensed statements of operations for
the three month periods ended June 30, 1997 and 1996, and the
consolidated condensed statements of cash flow for the three month
periods then ended.
The results of operations for the three months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the full
year. For interim reporting purposes, certain expenses are based on
estimates rather than expenses actually incurred. The unaudited interim
consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
for the fiscal year ended March 31, 1997, included in the Company's Form
10-K filed with the Securities and Exchange Commission.
The accounting policies followed by the Company are described in Note A
of the financial statements of the Company's Form 10-K for the year
ended March 31, 1997.
2. Supplemental cash flow disclosures: Cash payments for interest
were $2,147,000 and $2,561,000 for the three months ended June 30, 1997
and 1996, respectively. Net payments of income taxes were $22,000 and
$27,000 for the three months ended June 30, 1997 and 1996, respectively.
The Company recorded a non-cash charge of $433,000 related to the write-
off of deferred debt cost associated with the replacement of the
Company's revolving credit facility on May 21, 1996.
3. A nonrecurring charge of $13,529,000 was recognized during the
first six months of fiscal 1997 as discussed in the Company's Annual
Report on Form 10-K. Reserves utilized during the quarter ended June
30, 1997 are as follows (in thousands):
Balance Balance
at Reserves at
March 31, 1997 Utilized June 30, 1997
Property, plant and equipment
write-downs $6,840 $ (125) $6,965
Severance costs 518 139 379
Inventory write-downs 448 400 48
Other costs 333 134 199
Total $8,139 $ 548 $7,591
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operations during
the periods included in the accompanying (unaudited) consolidated
condensed statements of operations and balance sheets.
The discussion in this Form 10-Q includes certain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 with respect to the results of operations, financial
condition and business of Stokely. Statements in this document that are
not historical facts are hereby identified as "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E
of the Securities Exchange Act of 1934 and Section 17A of the Securities
Act of 1933. Stokely cautions readers that such "forward-looking
statements", including without limitation, those relating to Stokely's
future business prospects, revenues, working capital, liquidity, capital
needs and interest costs, wherever they occur in this document or in
other statements attributable to Stokely, are necessarily estimates
reflecting the best judgement of Stokely's senior management and involve
a number of risks and uncertainties that could cause actual results to
differ materially from those suggested by the "forward-looking
statements". Factors which could cause future results to differ from
these expectations include the following: general economic conditions;
vegetable processing industry conditions and price and volume
fluctuations; competitive pressures and pricing pressures; inventory
risks; supply-related risks; demand-related risks; third party lender
actions; and results of Company-specific cost containment and profit
enhancement initiatives. Additional factors are described in the
Company's other reports filed with the Securities and Exchange
Commission. The words "estimate," "project," "intend," "expect," and
similar expressions are intended to identify forward-looking statements.
These "forward-looking statements" can be found at various places
throughout this document. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of
the date hereof. Stokely does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
General
The Company's financial performance and growth are directly related to
certain characteristics and trends in the vegetable processing industry.
The United States vegetable processing industry is a mature industry,
with a relatively modest growth. Therefore, any significant sales
growth that may be experienced by the Company likely would come at the
expense of the loss of market share by another processor, but also may
occur through efforts designed to promote increased consumption, such as
through the introduction of new or improved products or through
increased sales internationally.
The Company's net sales are affected by product availability and market
pricing. In the vegetable processing industry, product availability and
market prices tend to have an inverse relationship: market prices tend
to decrease as more product is available, whereas if less product is
available, market prices tend to increase. Product availability is a
direct result of plantings, growing conditions, crop yields and
inventories, all of which may vary from year to year. In addition,
price can be affected by the planting, inventory level and individual
pricing decisions of the three or four largest processors in the
industry. Generally, the market prices in the vegetable processing
industry tend to adjust more quickly to variations in product
availability than an individual processor can adjust its cost structure;
thus, in an oversupply situation, a processor's margins likely will
weaken, as suppliers generally are not able to adjust their cost
structure as rapidly as market prices adjust for the oversupply. The
Company typically has experienced lower margins during times of industry
oversupply. There can be no assurance the Company's margins will
improve in response to favorable market conditions or that the Company
will be able to operate profitably during depressed market conditions.<PAGE>
RESULTS OF OPERATIONS:
Three Months Ended June 30, 1997 Compared to Three Months Ended
June 30, 1996
Net Sales
Net sales decreased $6.0 million, or 14.2%, to $36.3 million for the
quarter ended June 30, 1997 compared to $42.3 million for the quarter
ended June 30, 1996. The decrease in sales was due primarily to the
elimination of frozen sales of $11.3 million as the Company completed
its exit from the frozen vegetable business in fiscal 1997.
Total canned vegetable sales increased $5.3 million, or 17.1%, to $36.3
million for the quarter ended June 30, 1997 compared to $31.0 million
for the quarter ended June 30, 1996. The increase in total canned
vegetable sales was primarily the result of increased sales volume;
sales prices decreased slightly compared to the first quarter of last
year. Sales volume in the quarter ended June 30, 1996 was adversely
affected by lower available inventory due to poor growing and harvesting
conditions in the summer of 1995.
Cost of Products Sold
Cost of products sold decreased $7.1 million, or 19.1%, to $30.1 million
for the quarter ended June 30, 1997 compared to $37.2 million for the
quarter ended June 30, 1996. The decrease in cost of goods sold was due
primarily to the elimination of the frozen sales volume. Cost of
products sold as a percent of sales was 82.8% for the quarter ended June
30, 1997 compared to 87.9% for the quarter ended June 30, 1996. The
decrease of 5.1% in cost of products sold as a percent of sales is due
primarily to the elimination of the lower priced frozen sales that
occurred last year when the Company was liquidating the inventory.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $0.2 million to
$6.5 million for the quarter ended June 30, 1997 compared to $6.3
million for the quarter ended June 30, 1996. This increase is primarily
the result of increased selling expenses associated with the increase in
canned vegetable sales, partially offset by decreased administrative
expenses related to the cost reduction initiatives taken as part of the
restructure. Selling, general and administrative expenses as a
percentage of sales were 18.0% for the quarter ended June 30, 1997
compared to 15.0% for the quarter ended June 30, 1996.
Interest Expense
Interest expense decreased $0.3 million to $2.4 million for the quarter
ended June 30, 1997 from $2.7 million for the quarter ended June 30,
1996. This decrease was primarily due to lower average borrowing levels
on the Company's revolving credit facility and pay down of long-term
debt from proceeds on sales of property.
Net Loss
Net loss for the quarter ended June 30, 1997 was $2.8 million compared
to a net loss of $4.3 million for the quarter ended June 30, 1996. The
improvement in the net loss was primarily due to cost reductions
resulting from the Company's restructuring efforts and improved canned
vegetable sales volume.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
General
Due to the seasonal production nature of the canned and frozen vegetable
processing business, the Company must maintain substantial inventories
of processed vegetables throughout the year. The working capital
requirements associated with producing and maintaining such inventories
are financed primarily through short-term borrowings and deferred
payment terms with major raw product and container suppliers.
The Company's completion of its restructuring initiatives and
realization of the benefits has been hampered by the extremely depressed
market conditions that currently prevail in the canned processed
vegetable markets. Despite the progress made in implementation of the
restructuring, the Company is not able to operate profitably under
current market conditions. The Company anticipates continuation of the
significant margin pressure that currently exists through at least the
second quarter. As a result, although the Company is in compliance with
all debt covenants as of June 30, 1997, it anticipates it will be in
violation of certain financial covenants contained in its Senior Notes
and its Industrial Development Revenue Bonds prior to the end of the
second fiscal quarter and will seek to obtain waivers. The significant
margin pressure that currently exists also reduces the Company's
borrowing availability, and adversely affects its liquidity.
Cash Flows from Operating Activities
Cash flow provided from operations during the three months ended
June 30, 1997 totaled $10.6 million. Of the total cash provided,
changes in operating assets and liabilities provided cash of $11.9
million, primarily due to decreases in inventory of $13.9 million
partially offset by decreases in accounts payable of $2.1 million. The
decrease in inventory levels and associated reduction in accounts
payable reflects the seasonal reduction in inventories prior to the
current year growing and harvesting season.
Cash Flows from Investing Activities
Net cash used in investing activities during the three months ended
June 30, 1997 was $0.3 million. Purchase of property, plant and
equipment was $1.2 million during the three months ended June 30, 1997.
Cash Flows from Financing Activities
Cash used in financing activities during the three months ended June 30,
1997 totaled $9.6 million, and represents primarily decreases in
revolving credit obligations through the use of cash flow generated from
the seasonal reduction in inventories. At June 30, 1997 the Company had
$31.6 million of borrowings under its revolving credit facility, of
which $25.5 million was classified as long term and $6.1 million was
classified as short term. The Company had approximately $4.5 million of
availability to borrow under its revolving credit facility at June 30,
1997. Absent any significant improvement in current market conditions,
the Company will need to enter into a business combination or obtain
additional debt or equity financing to address it's longer-term
liquidity position. Canned vegetable processing is a relatively
fragmented industry that serves an increasingly concentrated customer
base and is supplied by increasingly concentrated key vendors. The
Company continues to believe that the industry participants, including
the Company, are going to have to combine, or work cooperatively through
joint ventures or other strategic alliance vehicles to offset the
effects of unequal concentration relative to the customer and supplier
bases.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable until after June 15, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
STOKELY USA, INC.
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STOKELY USA, INC.
Registrant
Date /s/ Stephen W. Theobald
Stephen W. Theobald
President and Chief Executive Officer
Date /s/ Peter P. Caputa
Peter P. Caputa
Senior Vice President
Chief Financial Officer
STOKELY USA, INC.
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STOKELY USA, INC.
Registrant
Date
Stephen W. Theobald
President and Chief Executive Officer
Date
Peter P. Caputa
Senior Vice President
Chief Financial Officer
<PAGE>
Exhibit 27.1
Period Type 3 Months
Period Year End March 31, 1998
Period End June 30, 1997
Cash 2,228
Securities 0
Receivables 10,781
Allowances 505
Inventory 59,842
Current Assets 73,396
PP&E 74,343
Depreciation 33,875
Total Assets 116,541
Current Liabilities 39,329
Bonds 68,188
Common 572
Preferred Mandatory 0
Preferred 0
Other Stockholders Equity 5,507
Total Liability and Equity 116,541
Sales 36,325
Total Revenues 36,327
Cost of Goods Sold 30,091
Total Costs 30,091
Other Expenses 0
Loss Provision 0
Interest Expense 2,444
Income Pretax (2,756)
Income Tax Expense 0
Incoming Continuing Operations (2,756)
Discontinued Operation 0
Extraordinary Items 0
Changes 0
Net Income (2,756)
EPS - Primary (0.24)
EPS - Diluted (0.24)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 2228
<SECURITIES> 0
<RECEIVABLES> 10781
<ALLOWANCES> 505
<INVENTORY> 59842
<CURRENT-ASSETS> 73396
<PP&E> 74343
<DEPRECIATION> 33875
<TOTAL-ASSETS> 116541
<CURRENT-LIABILITIES> 39329
<BONDS> 68188
<COMMON> 572
0
0
<OTHER-SE> 5507
<TOTAL-LIABILITY-AND-EQUITY> 116541
<SALES> 36325
<TOTAL-REVENUES> 36327
<CGS> 30091
<TOTAL-COSTS> 30091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2444
<INCOME-PRETAX> (2756)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2756)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
